Generating 7.2% Annual Returns: An OKE Covered Call Strategy

If you hold ONEOK Inc shares and want to maximize your returns beyond the current 5.6% dividend payout, writing covered calls presents an interesting opportunity. By selling January 2028 call contracts at the $100 strike level and collecting the $2.35 premium, you can boost your total annual income to approximately 7.2%—assuming your position remains unexercised.

The Numbers Behind the Strategy

Here’s how the math works: The premium income translates to an additional 1.5% annualized return at today’s stock price. This means your overall yield climbs from 5.6% to 7.2% annually if the stock stays below $100. The trade-off is straightforward: if OKE rallies above the $100 strike, your shares will likely be called away. However, that threshold represents a 36.7% upside move from current levels around $73.06, a substantial appreciation that would still deliver a respectable 39.9% total return including dividends collected along the way.

Understanding the Risk-Reward Profile

The decision to execute this strategy requires weighing the additional income against forgone upside potential. By capping your gains at $100, you’re essentially trading unlimited upside for a premium payment today. The trailing twelve-month volatility for OKE stands at 31%, which helps gauge whether compensation through the premium justifies giving up those higher price movements.

Dividend Considerations

It’s important to remember that dividend amounts fluctuate based on company profitability. Reviewing OKE’s historical dividend payments can help validate whether the current 5.6% yield is sustainable or if future payments might vary. This analysis becomes crucial when projecting your 7.2% total return target.

Market Context

As of mid-afternoon trading, options activity across the broader market showed notably high call volume relative to puts, with a put-to-call ratio of 0.54 versus the long-term average of 0.65. This suggests options traders are currently favoring calls, which could reflect underlying optimism about equity prices.

For investors seeking alternatives at different expiration dates, exploring various call strike levels and contract timelines can help optimize the income-generation approach while aligning with individual risk tolerance and price targets.